Justia U.S. 1st Circuit Court of Appeals Opinion Summaries

Two former police officers sued their employer, the Puerto Rico Police Department, alleging illegal retaliation after one reported age discrimination to the Equal Employment Opportunity Commission and the other testified in support. The plaintiffs claimed that, as a result, they suffered adverse employment actions such as dangerous shift changes, loss of duties, and fabricated complaints. The challenged conduct primarily occurred after Puerto Rico filed for financial reorganization under PROMESA, a federal statute enacted in response to the Commonwealth’s fiscal crisis.The United States District Court for the District of Puerto Rico presided over the case while Puerto Rico’s reorganization plan was pending in the Title III court. After the reorganization plan’s "Effective Date" passed, and while the plaintiffs’ suit was ongoing, the Department asserted that the claims had been discharged under the plan because the plaintiffs had not timely filed proofs of claim. The District Court agreed, permanently stayed the case, and enjoined the plaintiffs from pursuing their claims, finding that the claims must have arisen at least in part before the plan’s Effective Date since the suit was filed prior to that date. The District Court did not address the plaintiffs' judicial estoppel argument or their contention that post-petition claims were not dischargeable.On appeal, the United States Court of Appeals for the First Circuit affirmed the District Court’s judgment, but on different grounds. The appellate court held that the plaintiffs’ retaliation claims qualified as administrative expense claims under PROMESA (via incorporation of the Bankruptcy Code), and because the plaintiffs did not timely file such claims before the administrative claims bar date, they were discharged by the plan. The court also rejected the plaintiffs' judicial estoppel argument, finding no inconsistency in the Department’s litigation positions. The First Circuit’s judgment affirmed the permanent stay and injunction. View "Villalobos-Santana v. PR Police Department" on Justia Law

Two individuals challenged the Puerto Rican electoral commission and its acting president, arguing that restrictions on early and absentee voting during the 2020 general election unlawfully burdened the right to vote for citizens over sixty, especially considering the COVID-19 pandemic. In August 2020, they brought suit under 42 U.S.C. § 1983, seeking relief on constitutional grounds. The district court promptly issued a preliminary injunction, then a permanent injunction, allowing voters over sixty to vote early by mail. After judgment, the plaintiffs were awarded nearly $65,000 in attorneys’ fees under 42 U.S.C. § 1988.While the fee motion was pending, Puerto Rico’s government was in the process of debt restructuring under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). The restructuring plan, confirmed in January 2022, discharged claims against Puerto Rico arising before the plan’s effective date unless creditors filed proof of claim by a set deadline. Defendants argued in the U.S. District Court for the District of Puerto Rico that the attorneys’ fees award was subject to the plan’s discharge and enjoined from collection, because the plaintiffs had not filed a timely administrative expense claim. The district court rejected this, finding the fee award unrelated to the bankruptcy case.On appeal, the United States Court of Appeals for the First Circuit concluded that the claim for attorneys’ fees, though arising from post-petition litigation, related to events before the plan’s effective date. The court held that because the plaintiffs had actual knowledge of the restructuring proceedings but did not file a timely proof of claim, their fee claim was discharged under the confirmed plan and enjoined from collection. The First Circuit reversed the district court’s order, holding that the discharge injunction applied to the attorneys’ fee award. View "Ocasio v. Comision Estatal de Elecciones" on Justia Law

Two individuals entered into a loan agreement and mortgage with a bank in Puerto Rico, using their home as collateral. After a decade, they faced financial difficulties and stopped making payments. The bank denied a request to modify the loan but proposed a short sale. The bank then initiated foreclosure proceedings in Puerto Rico’s Court of First Instance, resulting in a judgment against the borrowers. Multiple short sale offers were rejected until one was conditionally accepted, but the sale did not close in time and the home was foreclosed. Subsequently, the bank garnished funds from the borrowers, who then filed for Chapter 13 bankruptcy.The United States Bankruptcy Court for the District of Puerto Rico confirmed the borrowers’ Chapter 13 plan, noting their intent to pursue claims against the bank. The borrowers filed an adversary proceeding seeking damages and other relief. The bank moved to dismiss the adversary complaint, but the bankruptcy court denied this motion, allowing the case to proceed. The borrowers later filed a similar complaint in the United States District Court for the District of Puerto Rico and moved to withdraw the adversary proceeding to the district court. The district court denied the withdrawal as untimely and dismissed the separate federal case. After the borrowers completed their bankruptcy plan and received a discharge, the bankruptcy court dismissed the adversary proceeding for lack of subject matter jurisdiction.On appeal, the United States Court of Appeals for the First Circuit held that the bankruptcy court erred in finding it automatically lost jurisdiction over the adversary proceeding post-discharge. The appellate court vacated and remanded the case for further proceedings, instructing the lower courts to reassess jurisdiction and properly address the borrowers’ motion for withdrawal and their jury trial request. View "Guallini-Indij v. Banco Popular de Puerto Rico" on Justia Law

Steven and Virginia Savage were officers and sole shareholders of a company that designed and installed digital planetarium equipment. When their company experienced financial distress, they used personal funds and credit cards to support business operations, but the company eventually defaulted on a large loan personally guaranteed by the Savages. In the year preceding their bankruptcy filing, the Savages received over $700,000 from the company, which they failed to fully disclose in their bankruptcy filings. Their bankruptcy schedules did not mention this income, and significant portions of the transferred funds were not satisfactorily explained, especially regarding rent payments from the company to the Savages and the use of those funds.After the company and the Savages filed for bankruptcy, the creditor, Coastal Capital, objected to the Savages’ discharge in their Chapter 7 proceedings. The United States Bankruptcy Court for the District of New Hampshire held a bench trial and found that, although the Savages explained most of the company funds they received, they failed to account for over $56,000. The court denied the Savages a discharge under 11 U.S.C. § 727(a)(5) for failing to satisfactorily explain the loss or deficiency of assets. The Savages’ post-trial motions were denied, and the United States District Court for the District of New Hampshire affirmed the bankruptcy court’s ruling.On appeal, the United States Court of Appeals for the First Circuit affirmed the district court’s judgment. The court held that § 727(a)(5) does not require a “substantial” loss of assets to deny discharge, nor does it require that the unaccounted-for funds be enough to pay all liabilities. It also found no clear error in the bankruptcy court’s factual determinations and rejected the Savages’ arguments regarding destruction of evidence and the sufficiency of their explanations. The denial of discharge was affirmed. View "Coastal Capital, LLC v. Savage" on Justia Law

In December 2021, the United States District Court for the District of Massachusetts partially recognized a multi-million-dollar foreign judgment obtained by PCC Rokita, S.A. against HH Technology Corp. (HHT). Shortly thereafter, HHT executed a trust agreement and an assignment for the benefit of creditors to wind itself down. About two months later, PCC Rokita petitioned the United States Bankruptcy Court for the District of Massachusetts to involuntarily place HHT into Chapter 7 bankruptcy. The Assignee moved to dismiss the involuntary petition, submitting a list of fifteen creditors of HHT that were allegedly qualified under section 303(b) of the Bankruptcy Code.The bankruptcy court issued an order setting a deadline for additional creditors to join the involuntary petition. Only one additional creditor, Shanghai Morimatsu Chemical Equipment Co., joined before the deadline. The court denied PCC Rokita's motion for an extension and subsequently denied DFT Properties, LLC's motion to join the petition after the deadline. The bankruptcy court held an evidentiary hearing and concluded that the Petitioning Creditors failed to prove that any of the twelve challenged creditors were unqualified, leading to the dismissal of the involuntary petition.The Petitioning Creditors appealed to the Bankruptcy Appellate Panel for the First Circuit, which affirmed the bankruptcy court's decision. They then appealed to the United States Court of Appeals for the First Circuit. The First Circuit held that the bankruptcy court may set a deadline for creditors to join a pending involuntary petition and that a putative debtor need not plead defenses to the avoidability of a pre-petition preferential transfer in its answer to the involuntary petition. The court also found that any error in requiring the creditors to disprove defenses to avoidability was harmless. Consequently, the First Circuit affirmed the dismissal of the involuntary petition. View "PCC Rokita, S.A. v. HH Technology Corp." on Justia Law

In 2008, Andy Luu Tran granted Citizens Bank a mortgage on his Massachusetts home. In 2022, the Bank foreclosed on the property, and Herbert Jacobs was the high bidder at the auction. The Bank recorded an affidavit of sale but the foreclosure deed lacked the required signature page. Tran filed a Chapter 13 bankruptcy petition and an adversary complaint to avoid the transfer of his interest in the property due to the improperly recorded deed.The U.S. Bankruptcy Court for the District of Massachusetts granted summary judgment against Tran, holding that the only transfer at foreclosure was of Tran's equity of redemption, which was extinguished at the foreclosure auction. The court found that the properly recorded affidavit of sale provided constructive notice, making the transfer unavoidable. The U.S. District Court for the District of Massachusetts affirmed this decision.The United States Court of Appeals for the First Circuit reviewed the case. The court held that Tran's equity of redemption was extinguished at the foreclosure auction when the memorandum of sale was executed. The court also held that the properly recorded affidavit of sale provided constructive notice of the foreclosure, making the transfer of Tran's equity of redemption unavoidable under Massachusetts law. Consequently, the court affirmed the judgment of the bankruptcy court. View "Tran v. Citizens Bank, N.A." on Justia Law

Mary E. Buscone, a Chapter 13 debtor, appealed an order rejecting her objection to a proof of claim for a Massachusetts state-court judgment owed to Ann Tracy Botelho. In a previous Chapter 7 bankruptcy, Botelho sought a determination that her judgment against Buscone was excepted from discharge under 11 U.S.C. § 523(a)(2)(A) and (a)(4). Due to discovery abuse by Buscone and her counsel, the bankruptcy court entered a default judgment for Botelho. In her current Chapter 13 bankruptcy, Buscone objected to Botelho's proof of claim on the same grounds as before and argued that the interest rate and accrual date prescribed by Massachusetts state law should not apply to the judgment.The bankruptcy court overruled Buscone's objection, and the district court affirmed. Buscone then appealed to the United States Court of Appeals for the First Circuit. The appellate court reviewed the bankruptcy court's findings of fact for clear error and its conclusions of law de novo. The court also reviewed the application of issue preclusion and determinations of post-judgment interest rates without deference.The First Circuit rejected Buscone's arguments. It held that she was precluded from raising the same affirmative defense to Botelho's proof of claim that she asserted in her motion to dismiss Botelho's adversary proceeding in the Chapter 7 bankruptcy. The court applied an exception to the actual-litigation requirement for issue preclusion, noting that the default judgment in the Chapter 7 proceeding was entered as a sanction for Buscone's misconduct. The court also held that the post-judgment interest on the state-court judgment debt should accrue at the rate set by Massachusetts law from the date of the state-court judgment's entry. The appellate court affirmed the lower court's decision. View "Buscone v. Botelho" on Justia Law

A Puerto Rico agency, the Milk Industry Regulatory Office (ORIL), revoked a dairy farmer's license and ordered him to sell his milk production quota rights. When the farmer, Luis Manuel Ruiz Ruiz, failed to comply, ORIL planned to auction the quota rights. Ruiz, who had filed for Chapter 12 bankruptcy in 2015, argued that the auction violated the automatic stay provision of the Bankruptcy Code.The bankruptcy court enjoined ORIL from auctioning the quota without court permission, finding that the planned auction violated the automatic stay. The court granted partial summary judgment to Ruiz, determining that ORIL's actions were not protected by the police power exception. ORIL appealed to the United States District Court for the District of Puerto Rico, which affirmed the bankruptcy court's decision, agreeing that the police power exception did not apply.The United States Court of Appeals for the First Circuit reviewed the case. The court held that ORIL's plan to auction Ruiz's milk quota fell within the police power exception to the automatic stay under 11 U.S.C. § 362(b)(4). The court reasoned that the auction was part of enforcing a judgment obtained in an action to enforce ORIL's regulatory power, which is not a money judgment. The court emphasized that ORIL's actions were aimed at protecting public health and welfare by regulating milk production and distribution, rather than advancing a pecuniary interest.The First Circuit reversed the judgments of the bankruptcy and district courts, directing judgment in favor of ORIL. The court concluded that ORIL's planned auction did not violate the automatic stay and was protected by the police power exception. View "Milk Industry Regulatory Office v. Ruiz Ruiz" on Justia Law

The case involves Edgar Reyes-Colón, who was subjected to an involuntary Chapter 11 bankruptcy petition filed by Banco Popular de Puerto Rico in 2006. The bankruptcy court dismissed the petition in 2016, finding that Banco Popular failed to join the requisite number of creditors. Reyes-Colón subsequently filed a motion for attorney's fees and costs under 11 U.S.C. § 303(i)(1) and initiated an adversary proceeding alleging bad faith under 11 U.S.C. § 303(i)(2).The bankruptcy court denied Reyes-Colón's motion for attorney's fees, ruling it lacked subject-matter jurisdiction as the motion was filed after the case was closed. Reyes-Colón appealed to the District Court for the District of Puerto Rico, which affirmed the bankruptcy court's decision, adding that the motion was untimely under local rules requiring such motions to be filed within fourteen days after the issuance of the mandate. Reyes-Colón then appealed to the United States Court of Appeals for the First Circuit.The First Circuit held that the bankruptcy court had jurisdiction over post-dismissal § 303(i) motions, as such motions necessarily require post-dismissal jurisdiction. However, the court affirmed the denial of the attorney's fees motion on the grounds that it was untimely, as it was filed 365 days after the mandate issued, far exceeding the fourteen-day limit set by local rules.Regarding the adversary proceeding, Reyes-Colón filed a motion for withdrawal of reference to have the district court adjudicate the case. The district court denied the motion as untimely, conflating the timeliness of the motion for withdrawal with the timeliness of the § 303(i) motion. The First Circuit vacated this decision, clarifying that the timeliness of the motion for withdrawal should be measured from the filing of the adversary proceeding, not the dismissal of the involuntary petition. The case was remanded for further consideration of whether there is cause to withdraw the reference. View "Reyes-Colon v. Banco Popular de Puerto Rico" on Justia Law

The case involves Puerto Rico's attempt to enact Law 29, which aimed to relieve municipalities from contributing to the Commonwealth's reformed public pension funding scheme. The Financial Oversight and Management Board for Puerto Rico (the Board) challenged the law, and the Title III court overseeing Puerto Rico's debt restructuring declared Law 29 a nullity and of no effect. This decision was not appealed. La Liga de Ciudades de Puerto Rico (La Liga) argued that the Title III court's order did not authorize the Board to recover funds retained by municipalities under Law 29 before the order took effect.The United States District Court for the District of Puerto Rico, interpreting its own prior order, granted motions to dismiss filed by the Board and other defendants. The court dismissed some claims on the merits and others for lack of standing. The court held that the Title III court's order applied retroactively, nullifying Law 29 from its inception and allowing the Board to recover the funds.The United States Court of Appeals for the First Circuit reviewed the case. The court affirmed the district court's dismissal of La Liga's complaint. It held that the Title III court's order declaring Law 29 a nullity and of no effect applied retroactively, covering the period from the law's enactment. The court found that the Title III court had the authority under PROMESA to nullify Law 29 from its inception and that the Board's actions to recover the funds were justified. The court also addressed standing issues, affirming that La Liga had standing to sue the Board and CRIM but not the executive branch defendants. View "La Liga de Ciudades de P.R. v. Financial Oversight and Management Board" on Justia Law